Exactley how does term life insurance work?

Question

Whats the difference between regular life insurance and term?How does term work?

Answer 1

Term insurance is like renting, when you rent an apartment at the end of the lease you leave the apartment and you have not built up any equity. With term insurance you buy 20 year term and you pay a set price for 20 years. If you die within that time frame your beneficiary receives the death benefit. If you don't die at the end of the 20 years the term expires and you no longer have life insurance. This can be a problem if you still need insurance and you are no longer in good health or maybe you even have a terminal disease.

Universal life Variable life, whole life are all versions of permanent life that are designed to provide you coverage until you do or reach age 100 or in some cases 120. This is more expensive than term but you will always have some life insurance. These policies have a cash value component, meaning that a portion of the premium you pay gets placed in an account that earns interest . After 20 years it is possible that this cash value could be enough to pay your premiums for the next 20 years.

It is wise for most people to have a portion of both term and permanent life. A good example is a family with young children may want enough life insurance to provide income for the surviving spouse to stay home raise the kids and to provide for a college education. Let's say this is $1 million. I would suggest 900K term for 20 or 25 years and then a smaller permanent life policy of 100K.

I routinely run across people from age 50 to 70 that are buying permanent life insurance.

let's say someone has term insurance and comes down with a terminal illness at the end of the term. Even with health insurance a terminal illness can cause great financial harm to the faineances of the family. Then you are left without life insurance to offset the cost of the illness and the final expenses.

Answer 2

SIMPLIFIED VERSION IN ENGLISH:

Its large amounts of coverage for the least amount of money. Down side is there is no refund of premium if you cancel it, the price goes up every 10 or 20 years and it will be unaffordable by the time you are over 60. Hence, only 1.5% of term policies ever pay out.

On the other hand its a MUST HAVE for young couples and especially couples with kids.

Answer 3

By regular life insurance, I assume you mean whole life, since it insures you until death. Both whole life and term life insurance are designed to protect a family against the financial burdens that accompany the premature death of a breadwinner. You pay a monthly or yearly premium with each. The difference is this: A term life policy is for a limited period of time—the term. It will pay a death benefit only in the event that you die during term covered by the policy. That term could be 10 years, 20 years, or 30 years. If you die the day after the policy ends, the insurance company does not pay a death benefit. Since very few people die during the term, the insurance companies do not pay may death benefits, so the cost of insurance is low.

A whole life policy covers your for your entire life. If you die the day after you take out the policy, you are covered. If you die in 20 years, you’re covered. And if you die when you’re 80, you’re covered. In the mean time, the insurance company invests the money you pay in premiums, and some of the earnings are put into your policy in the form of cash value. The cash value builds over the years. At some point—when you are on a fixed income, for example—you can use your cash value to pay the premiums, keeping your policy in force. Because the insurance company is certain to pay a death benefit on each whole life policy, the costs are higher and the insurance premiums are higher. Good luck!

Answer 4

OK, term is PURE insurance - a straight bet on whether or not you'll die, within a certain time period.   I LOVE term insurance.  

"Regular" life insurance would be whole life, universal, variable, etc - where they've added gimicky extras to it, at about 10X the price of term insurance.

Don't worry about the labels - think about what you want the insurance to do for you.  PIck the product AFTER you've set the goal.

Me, I want my kids to be able to go through college, and hubby to hire a nanny, if I kick off.  When the kids are grown, we have no more need for life insurance, according to MY financial goals, so we have term.

Answer 5

Regular or whole life is life insurance with a "forced savings" plan attached to it. However, there are rules that are in the favor of the company rather than you. Most importantly is if you die your family chooses between the face amount, how much you want loved ones to receive, OR cash amount. Usually, cash amount goes to the company.

Term insurance is cheaper and you can be covered for more. Insurance is a transfer of risk for an amount of money. You and your family, at this point, cannot pay all bills, funeral, house and college at this point in time, if you were to pass. So you pay the insurance company a certain amount of money, each month, and they in turn promise to pay your family the amount of money both of you agreed to. Term is this for a certain period of time, at the end of which you can can decide to not keep it enforce or redo the insurance. But it will be more expensive now, since you are older.

Be sure you know why you are getting the insurance in the first place. If you are young, have children, bills, married you probably need insurance. Can you pay for your everyday needs right now? Get a complete financial needs analysis to be sure you are going to be covered for what YOU need not what you agent needs.